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Sugar companies may face compulsory quota cuts

By Laura Crowley , 27-Feb-2008

The European Commission may have to enforce compulsory final sugar quota cuts of 1.16m tones in 2010 with no compensation, as current renunciations fall below targets.

This week the breakdown between member states for this possible final cut will be delivered to member states and the stakeholders in attempts to encourage companies to make further pledges for 2008 and 2009. It has been up to companies to decide either to renounce further to meet targets before 31 March under generous conditions for 2008/9 or to renounce them next year under less attractive conditions.


If they fail to make satisfactory cutbacks, companies risk a final cut with no compensation being imposed on them. Until now, 4.8m tonnes have been renounced within the restructuring scheme, which was introduced in Europe in 2006 to improve competitiveness and market orientation of the EU sugar sector and to guarantee its long term future.


The goal is to reduce the volume of sugar on the market by 6m tonnes by 2010, with exports limited to 1.374m tonnes and imports increased substantially. In the first two years, 2.2m tonnes were renounced. For 2008 to 2009, the first step of renunciation equals 2.5m tonnes, while the amount for 2009 to 2010 currently stands at 0.1m.


Incentives The European Parliament sees the current renunciation shortfall as being down to insufficient financial incentives laid on the table.


Original financial incentives were followed by fines on governments failing to make adequate cutbacks. In an attempt to speed up the reform process, agriculture ministers last year agreed on a package of new measures.


The amendments meant that the percentage of the aid given to growers and machinery contactors was fixed at 10 per cent, but growers who renounced the quota would get an additional payment. A new element introduced was that beet growers may apply directly for aid from the restructuring fund. Moreover sugar producers who sell that share will receive a refund of the restructuring levy.


Each year, before 16 March at the latest, the Commission may decide on a mandatory withdrawal of quota sugar and isoglucose, if the forecast market situation were to show this to be necessary. The deadline for this decision is to allow producers to adjust areas sown to beet in order to avoid the production of surplus stocks. Effect on companies


When the sugar reform was first announced, some companies announced negative effects on their finances, despite incentives and so many have had to restructure their business. In December, ABF said that sugar reform had unfavourably affected its operations during the current financial year. Company earnings from sugar production were down by €40m compared to the previous twelve months, and it was expected they would continue to drop this year.


Two-thirds of the company's sugar production is now being produced outside of Europe, where consumption rates were also found to be rising. Last month, Tate & Lyle completed its sale of its Mexican sugar business, removing itself from volatile commodity markets and allowing it to refocus on value-added ingredients.


Danish ingredients producer Danisco announced last September that it would reduce its sugar quota by more than 10 per after being stung with levy charges amounting to €20m. In November it announced it would close its sugar production plant in Panevezys, Lithuania, as part of its attempt to reduce its overall quota to 967,000 tonnes from about 1.05m tonnes.


Sales revenues for Agrana's sugar segment were down last summer to €171m for the three months ended May 31, from €243m the same quarter the previous year, due to EU sugar reforms.


It now intends to close its plant in Petohaza and will instead focus its activities at its Kaposvar facilities, in the attempt to make production as efficient as possible.

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